Morgan Stanley said that it had $12.3 billion of subprime-related exposure on its balance sheet at the end of August. That left the firm capable of losing $10.4 billion if all those securities defaulted, leaving nothing left. The bank's potential losses -- or its net exposure -- related to these securities declined at the end of October to $6 billion, Morgan added.

Paulson & Co., a $24 billion hedge fund firm that's generated huge returns from betting against subprime mortgage securities, has begun trimming those positions.
Still, the firm reckons turmoil in credit markets isn't over and has been taking more derivative bets against financial-services firms that it thinks are vulnerable, according to a letter Paulson sent to investors recently. MarketWatch obtained a copy of the letter on Thursday.
Paulson began betting against subprime mortgage securities last year. As delinquencies and foreclosures surged this year, some of those securities have slumped as rating agencies downgraded them.
That helped the Paulson Credit Opportunities Ltd. fund return 117%, net of fees, during the third quarter. That leaves the fund up more than five-fold for the first nine months of 2007, according to the letter.

If Paulson is able to generate 117 % net returns during the 3rd Quarter, why wouldnÂ´t other smart IBÂ´s be able to do so ?